New York – Investors flocked to gold last Friday, sending it to the latest in a series of records, as fears about recession in the world’s major economies infected financial markets.

The metal soared as high as US$1,881.40 (S$2,273) an ounce – adding to a jump of more than 15 per cent this month alone. In the same three weeks, the Standard & Poor’s 500-stock index in the United States has fallen about 12 per cent.

As an investment, the metal has climbed because of investors’ concerns about the uncertain state of the global economy, diving stock markets and moves by central banks around the world to weaken their currencies. Central banks in developing countries are also swopping major currencies for gold in their reserves, driving up demand for the metal.

At this point, analysts say more than fear is driving gold higher. The simple fact that it has kept rising in an otherwise turbulent market is part of the metal’s appeal. The recent surge ‘lacks a lot of explanation’, said Mr Jon Nadler, an analyst for Kitco Bullion Dealers, and that, to him, signals danger of a deep reversal as it approaches US$2,000 an ounce.

But analysts have been predicting a top in the market for months, only to see gold’s climb accelerate.

The last time gold was worth less than US$1,000 an ounce was October 2009. It gained steadily from there, and then burst higher this summer, crossing US$1,600 an ounce for the first time in mid-July; three weeks later it was worth more than US$1,700 an ounce, and 10 days later it passed US$1,800 an ounce.

Gold for December delivery, the most actively traded contract, settled up US$30.20, or 1.6 per cent, at US$1,852.20 an ounce.

Still, these record highs remain below gold’s 1980 peak of US$850 when adjusted for inflation; that equals about US$2,400 in today’s dollars. That record could be knocked out if investors keep betting that gold will protect them if the US and Europe fall back into recession, which could sink stock prices.

Several major banks and economists have recently sounded warnings on the risk of a new downturn.

So what would US$2,000 an ounce gold mean for shoppers? Gold is used in industrial products and mainstream consumer goods. With every fresh high, consumers will have to pay more for everything from engagement rings to crowns for their teeth.

The surge in gold is causing ‘major problems’ for jewellery sellers, Kitco’s Mr Nadler said. Stores are asking designers to make different kinds of pieces that use less gold, swopping in steel or palladium.

And the surge in gold is affecting gold-producing countries, even minor exporters.

Police in Guyana said last Friday that the surge had triggered killings, robberies and other crimes across the South American country. Venezuela said earlier last week that it was nationalising its gold industry and bringing home its US$11 billion in gold reserves.

Source: Straits Times (subscribers only)

NEW YORK (AP) – The price of gold hit its latest record high, near US$1,830 (S$2,229) an ounce, as investors spooked by the prospect of a return to recession sought out safety on Thursday in the precious metal.

Gold prices have more than doubled since the recession began in late 2007. They’ve risen about 19 per cent since the beginning of June, as European leaders struggled to keep the debt crisis from infecting the region’s major economies and US politicians nearly drove the country to the brink of default, prompting Standard & Poor’s to cut the country’s AAA credit rating.

Morgan Stanley on Thursday cut its forecast for global economic growth for this year and 2012, saying the U.S. and the 17 countries that use the euro were ‘hovering dangerously close to a recession’. While gold has hit a series of record highs over the past 2 months, the Standard & Poor’s 500 has dropped about 15 per cent, while the dollar, a traditional safe haven during periods of market turbulence and fear, is flat against a group of six major currencies.

The metal’s value, unlike that of a currency, doesn’t depend on the health of a single country’s economy. Its swift rise has made it popular with investors seeking big returns, as well as presumed safety from turbulent financial markets. Despite gold’s big run-up, however, it remains below its 1980 peak when adjusted for inflation. Then it was worth US$850 an ounce, or about US$2,400 in 2011 dollars.

Source: Straits Times

ASIAN markets shuddered and gold soared to a record high yesterday after American lawmakers failed again to break the impasse over moves to raise the nation’s debt ceiling and avoid a default.

Talks between Democrats and Republicans on the US debt ceiling had collapsed last Friday and the two sides made little progress towards resolving their differences over the weekend.

The stalemate is reaching a critical stage with the Aug 2 deadline only a week away, before the US government is unable to meet all its obligations like interest payments on debt, social security or pay the salaries of federal workers.

This prompted a warning yesterday from the International Monetary Fund (IMF) that the United States faces a ‘severe shock’ if the ceiling is not lifted.

Republicans and Democrats have started pursuing rival budget plans which are unlikely to win broad support.

House Speaker John Boehner, the top Republican in Congress, was holding a closed-door session late yesterday to push for a two-stage strategy that would raise the ceiling by only US$1 trillion (S$1.2 trillion) in order to force another vote on the issue before next year’s presidential election. House Democrats were also planning their own session.

Deal or no deal, some are warning that the US economy is being damaged by the protracted stalemate. Even if there is no collapse in the markets, investors could lose their confidence in US Treasury bonds and sell them off, which drives down the value of the bonds.

Such unease about the Washington stand-off is unnerving investors the world over, particularly in Asia where many nations have massive holdings of US government bonds.

A default or even a downgrade will send the greenback plummeting, savagely cutting the value of those holdings. The unease was reflected in regional markets yesterday with Shanghai leading the rout as shares plunged 2.96 per cent.

Sydney was down 1.58 per cent, Tokyo slipped 0.79 per cent and Hong Kong 0.68 per cent. In Singapore, the Straits Times Index edged down 0.36 per cent.

On Wall Street, the Dow Jones Industrial Average opened 106.37 points, or 0.84 per cent, lower.

The relatively muted falls in Singapore and Hong Kong likely suggest investors have already factored in the default risk or believe an 11th hour compromise will be found.

But some analysts said it was premature to tell if markets can remain sanguine in the days ahead.

‘There’s an old saying that things don’t matter until the day they matter; we’re getting close to the day when it will matter,’ Mr Quincy Krosby, market strategist at Prudential Financial in Newark, told Reuters.

A more telling indicator of the concern could be seen in the commodity and currency markets. Gold surged to a record high above US$1,620 an ounce in Asia trading, while the US dollar crashed to a record low of $1.2071 to the Singapore dollar and 78.13 Japanese yen. But the redeeming grace is that there was none of the panic selling that US politicians feared when talks to raise the debt ceiling broke down over the weekend.

‘Traders view all these wrangling in Washington as pure politics. No doubt, a compromise will be reached eventually,’ said Mr Loh Hoon Sun, Phillip Securities’ managing director.

‘But the market has turned very quiet because uncertainties are keeping investors from making fresh purchases.’

The question remains the same as it has been for weeks: Can a deal be struck by Aug 2 to raise the US$14.3 trillion debt ceiling in order to ensure that the US government does not run short of cash to pay all its bills?

In Hong Kong yesterday, US Secretary of State Hillary Clinton, sought to reassure business leaders that an agreement was in sight, despite the intense political wrangling in Washington.

‘I am confident that Congress will do the right thing and secure a deal on the debt ceiling and work with President (Barack) Obama to take steps to improve our long-term fiscal outlook,’ she said.

China is the single biggest foreign holder of US government bonds with US$1.16 trillion as at May. Other major holders include Japan, Taiwan, Singapore, India and South Korea – vast foreign reserves built up after the Asian financial crisis.

A senior official at South Korea’s central bank, who spoke on condition of anonymity because he was not authorised to speak to the news media, said: ‘Those in direct charge of reserves operations must be more nervous than before. But nobody thinks Americans will choose suicide when they have known solutions.’

Mr Xia Bin, an academic adviser to the People’s Bank of China, the mainland’s central bank, agreed: ‘They will definitely reach a compromise. Don’t worry too much about it.’

But given the risks involved from a default it is not surprising that many people are worrying.

The bond market is jittery over the possibility of the US losing its triple A ratings if lawmakers fail to agree on deep long-term spending cuts to try to balance the budget.

A lower credit rating will raise the borrowing costs not only for the US government but also for other countries and companies across the globe which use US government bonds as the benchmark for pricing their own debts.

One key test of investor confidence will come later this week, as the US Treasury aims to sell US$99 billion in new debt, even as the clock ticks on attempts to resolve the impasse over the debt ceiling. Any weakening in demand would flag growing worries about a debt default.

At least the market’s old hands seem immune to the growing jitters.

Mr James Holt, a fund manager with US-based BlackRock Investment Management, told US cable TV channel CNBC: ‘I have seen this movie before (when there was a US debt default 16 years ago during the Clinton administration).

‘The ironic thing is that despite all the doom and gloom, a year later, Americans produced their first budget surplus in decades.’

Source: Straits Times (subscribers only)

If there is one asset class that has continued to thrive in the past five years of financial ups and downs, it is gold.

Last week, at the height of the worries over the European and American debt crises, gold soared to hit a record high of US$1,610 an ounce.

Indeed, the price of gold has been climbing steadily since 2007, rising from US$640 per ounce to the current US$1,590 per ounce.

This represents roughly 20 per cent returns a year compounded, making gold one of the best assets to have invested in.

Its attractiveness as an asset class is well-known: Investors mainly use it as a hedge against the traditional asset classes of equities and bonds.

It also helps that gold is a cultural icon, used in many Asian customs such as weddings, making demand for the metal resilient.

For these reasons, analysts believe that all investors should hold gold in their portfolios.

UOB’s director of bullion sales, global markets and investment management, Ms Beh Hsia Wa, said many people invest in gold to deal with problems arising from inflation or a downturn.

‘Gold may be a good approach to balance one’s portfolio as the precious metal has shown strong returns over recent years,’ she said.

‘The fact that it is not correlated with most other assets means that the price of gold is not driven by the same factors that affect the performance of other assets.’

She cited several factors likely to support demand for gold: declining mine output, weaker recycling, gold purchases by central banks, geopolitical tensions and concerns over sovereign debt.

‘Low interest cost has also reduced the opportunity cost of owning gold and makes it a more attractive investment,’ said Ms Beh, noting that US interest rates have hovered at 0.25 per cent since December 2009.

Given that background, gold, which does not pay interest or a yield, becomes attractive.

OCBC vice-president for wealth management Vasu Menon said gold is an asset class for all kinds of investors, not just the wealthy.

But he noted that it is a very volatile asset class and suitable for those with a strong risk appetite.

For instance, the price of gold is strongly inversely related to the strength of the US dollar and global risk appetite.

While both the US dollar and the global economy have been performing weakly lately, there is no ruling out that both might rebound in the years ahead.

‘Even if you have a strong risk appetite and are positive on the outlook for gold, it’s important to make sure that you don’t get carried away and over-invest in it,’ he said.

‘Five per cent to 10 per cent of one’s total investments could be an allocation to consider when investing in gold.’

But for investors who have not yet jumped in, is it too late now that the gold price has hit yet another record high?

Mr Menon said that while it is hard to make a prediction about the price of gold in the short term, the bank is more positive about the outlook in the medium term.

For investors who do want to start investing in gold, there is a multitude of tools one can use.

One can buy physical gold anywhere, from pawnshops to banks.

UOB, for instance, sells gold coins and gold bars – the bank was selling a 1kg gold bar for $62,542 as of Thursday.

Investors can also buy into gold-backed exchange traded funds which can be bought and sold on the stock exchange.

In Singapore, investors can buy and sell SPDR Gold shares, which are listed on the Singapore exchange.

Source: Straits Times (subscribers only)

SILVER is glittering more brightly than gold for many investors, even though its price lags far behind that of the more glamorous metal.

Gold, though, has lost none of its lustre, rallying yesterday to a record high of US$1,461.20 after rising 3 per cent since the start of the year.

But the shinier metal in terms of recent percentage gains is undoubtedly silver, which broke a 31-year-old record by reaching US$39.52 an ounce yesterday.

Its price has outpaced gold’s by a mile, doubling since last year and rising 30 per cent since January this year.

Analysts said investors have been buying up the two metals as a hedge against uncertainty in the Arab world, rising inflation and sliding major currency values.

‘It is unquestionable that the demand for these precious metals derives from the devaluation of the leading currencies, the dollar, the pound and the euro,’ Mr Angelos Damaskos, a fund manager at Sector Investment Managers, told Reuters. ‘Investors are looking for an alternative store of value, and one of those is the precious metals.’

Yesterday, the yen fell to a six-month low against the US dollar, trading at 85.12 yen. The greenback also slid to US$1.43 against the euro, a 14-month low.

Aside from silver being a store of value, its rise is also driven by the fact that it is a highly sought-after industrial metal used in electronics manufacturing such as computer chip production, said Ms Ong Yi Ling, an analyst at Phillip Futures.

Silver’s previous record high of US$50 an ounce in 1980 came after billionaire brothers had tried to corner the market by buying massive amounts of silver.

The Hunt brothers had, at one point in time, owned more than 200 million ounces of silver.

They failed and the price of silver fell dramatically, and has picked up only in recent years. It was trading at about US$18 an ounce early last year.

‘Silver is a unique asset that has a store of value and industrial properties,’ said Ms Ong.

‘With the economic recovery gaining some momentum, silver has outperformed gold tremendously.’

Businesses here say they have been affected by the high price of gold.

Goldsmiths are reporting lower sale volumes while pawnshops are seeing more people cash in their gold jewellery.

Mr Nelson Liew, operations manager at Best Jewellery & Goldsmiths, said sales of gold items have been falling over the past 18 months.

However, Mr Yeow Shang Ying, manager at Heng Leong Pawnshop, said he has seen more people come to pawn gold in the past six months or so.

To cope with the high price of gold, some jewellery stores such as Taka Jewellery are offering promotions and discounts to attract customers, said Ms Madeline Tay, its marketing manager.

Silver’s recent spectacular gains have prompted many investors to turn their attention to this metal.

Mr Joshua Thia, who runs a business importing silver coins and bars and selling them to individual investors, said his business doubled last year as individuals saw the huge potential in silver prices.

‘I have customers from teachers to millionaires, and they all wanted to buy silver for the huge potential in value,’ said the 26-year-old entrepreneur, who makes between $3,000 and $12,000 a month.

His best-selling item is a box of 500 silver coins, which costs about $31,000, at current silver prices.

‘I won’t be surprised if silver doubles in value in the next few years as people start to realise how valuable it really is,’ he added.

One such investor is engineer Tay Cheok Sin, 36. He owns a few silver coins, handed down to him by his grandmother, and wants to buy more.

‘I’d rather put my money in physical things than buy numbers on a screen because I want to feel my investment with my fingers,’ he said.

‘And I’ve always liked white better than yellow.’

Source: Straits Times (subscribers only)